“It is right that we take decisive action now to ensure a responsible gambling industry that protects the most vulnerable in our society. By reducing FOBT stakes to £2 we can help stop extreme losses by those who can least afford it.”

Culture secretary Matt Hancock said: “When faced with the choice of halfway measures or doing everything we can to protect vulnerable people, we have chosen to take a stand.”

Bookmaker William Hill warned the decision could see around 900 of its betting shops become loss-making, with a “proportion” at risk of closure shortly after the new £2 limit comes into effect.

The group said the stake cut could also hit annual earnings by between £70m and £100m.

Philip Bowcock, chief executive of William Hill, said: “The government has handed us a tough challenge today and it will take some time for the full impact to be understood, for our business, the wider high street and key partners like horseracing.

“We will continue to evolve our retail business in order to adapt to this change and we will support our colleagues as best we can.”

Speaking on BBC Radio 4’s Today programme, Labour’s deputy leader Tom Watson said he hoped job losses could be avoided.

“They [bookmakers] have really boxed themselves into a corner, but I would hope that now that we’ve got this decision, the bookmaking companies will be able to make sure there is investment in other forms of recreational gambling that don’t have such addictive qualities,” he said.

The chief executive of amusement machine industry trade body Bacta, John White, said a stake reduction had “long been needed” to protect consumers from “the harm” caused by FOBTs.

“This is a decision that puts player protection first, and will allow the gambling industry as a whole to move forwards and create a safer, more socially responsible environment for consumers,” he said.

Other measures announced by the government include:

– The Gambling Commission to toughen up protections around online gambling including stronger age verification rules and proposals for customer spending limits.